How can regulators make sure that America's banks are ready to weather a future crisis in the economy? There are no guaranteed solutions, but many believe that part of the answer is subjecting banks to stress tests. What is stress testing, and how does it work? This featured article in the latest issue of Region Focus looks at these and other questions about this recent addition to regulators' toolkits.

Implicitly, most central banks now reject the propositions of monetarism, argues Robert L. Hetzel in the latest issue of Economic Quarterly. They do not characterize themselves as creators of money, but instead emphasize their role in influencing financial intermediation. They do not discuss monetary policy in terms of a rule, but instead use the language of discretion. They refer to the low level of interest rates to characterize monetary policy as stimulative despite low rates of growth of money and nominal gross domestic product. Hetzel explores the question of whether monetarist ideas retain relevance for central banks.

Millions of American workers have left the labor force since the end of the recession in 2009. Who are these missing workers? What are they doing, and how are they making ends meet? The cover story in the latest issue of Region Focus magazine looks at these and other questions about the drastic drop in labor force participation.

In response to the financial crisis of 2007-2008, Congress created the Orderly Liquidation Authority (OLA) as part of its financial regulatory reform bill, the Dodd-Frank Act. The OLA's provisions are aimed at simultaneously addressing two conflicting goals — mitigating systemic risk, which is thought to emerge when large financial firms enter the bankruptcy process, while also minimizing moral hazard, which arises when investors believe that firms are likely to be granted a government bailout to save them from bankruptcy and prevent systemic problems. In this issue of Economic Quarterly, Sabrina R. Pellerin and John R. Walter review the features of both bankruptcy and the OLA and identify how certain provisions of the OLA aim to address apparent weaknesses inherent in the core features of bankruptcy when resolving systemically important financial institutions, and specifically, how these provisions intend to balance the conflicting goals of limiting systemic risk and the almost inevitable increase in moral hazard.

Innovation is the key to long-term economic growth. But as the United States continues its slow recovery from the deepest recession since the Great Depression, restoring the country's "innovation economy" has taken on new urgency. The cover story in the latest issue of Region Focus examines how much economists know about what spurs innovation, as well as how policymakers might use that information to boost jobs and GDP. And in his opening column Richmond Fed President Jeffrey Lacker argues that we should be cautious about attempting to limit financial innovation.

Marianna Kudlyak, Thomas Lubik, and Jonathan Tompkins of the Richmond Fed explore changes in the aggregate employment of men between the ages of 25 and 64 in the United States from 1968 to 2010. Since 1970, the percentage of this group that is employed has trended down, and the percentage that is out of the labor force has trended up. In the aftermath of the Great Recession, 76.3 percent of the group was employed in 2010 (an all-time low), while 14.7 percent was out of the work force (an all-time high). The authors decompose the changes in these labor market outcomes into changes in the sociodemographic composition of the population and changes in the labor market outcomes of different sociodemographic groups. Using those results, they project that the share of men aged 25 to 64 out of the labor force may increase to 16 percent in 2015.

The great recession of 2007--2009 has generated significant external criticism of the way economists study and try to understand aggregate economic outcomes. Modern macroeconomic theory, in particular, has been criticized for its representation of the economy through highly stylized environments that abstract from distributional issues, ignore or minimize linkages between the financial and nonfinancial sectors of the economy, and, in general, rely too much on highly aggregative frameworks. This special issue of Economic Quarterly collects four articles that describe how modern macroeconomic research has dealt with some of these issues as part of a research program that has been ongoing for more than a decade.